London: Vodafone cut its medium-term sales target and took a write down of £4 billion on Tuesday as cash-strapped customers in southern Europe made fewer calls and regulators upped the pressure on the world’s largest mobile operator.
Vodafone posted full-year results in line with forecasts and stood out from its peers by promising another strong dividend as strength in emerging markets and Germany, Britain and Turkey offset a slump in spending in Spain and Italy.
But with trading in its two big southern European markets showing little sign of improvement and regulatory and foreign exchange pressures due to continue, Vodafone said it now expected organic service revenue growth in 2013 to be slightly below its previous medium-term target range of 1-4%.
It took an impairment charge of £4 billion against its businesses in Spain, Italy, Greece and Portugal, all at the heart of the euro zone debt crisis. The problems have hurt consumer spending which is expected to hit Vodafone’s cash flow.
“Europe continues to be challenging,” chief executive Vittorio Colao told reporters. “But even though the macro economic conditions remain tough, Vodafone is well positioned for the coming years.
Photo: Bloomberg
The British-based group is the latest in a long line of major companies to be hit by government austerity measures being imposed across Europe, where consumers facing tax rises, inflation and muted wage growth are cutting spending.
A reluctance to spend on discretionary goods, particularly in Italy, Spain and Greece, has hit Europe’s biggest retailer Carrefour, drinks group Diageo and electricals retailer Kesa among others in recent weeks.
British retailer Marks & Spencer scaled back its revenue growth guidance on Tuesday.
The telecom sector has also been hit by the steady cuts to so-called mobile termination rates, which are the fees operators pay each other to connect and disconnect calls.
Beating Rivals
But despite the twin pressures, Vodafone has managed to stay ahead of rivals due to its strong presence in faster growing emerging markets, strong corporate offering and a reputation for a better network.
It raised its total dividend by 7% to 9.52%, before the addition of a special dividend from its business in the United States, and said it expected that growth rate to continue for the 2013 financial year.
“Our return to shareholders has been exceptional this year,” Colao said.
Analysts said the results for the 2012 financial year were in line or above forecasts, and said the lower outlook had been expected, although some previously supportive analysts started to question what more the group could be doing in Europe.
Shares in the group were up 1.5% against a wider FTSE 100 Index which was up 1%.
“Prudent guidance may be reassuring for some and certainly there is nothing too alarming in these results with Vodafone still looking the best of a bad lot,” Robin Bienenstock at Bernstein said.
“But while the pursuit of ‘more of the same´ makes sense in emerging markets; it makes Vodafone seem more adrift than determined in much harder hit macro-economic climate of Europe.”
Vodafone’s problems in Europe mirror those of rivals, with Spain’s Telefonica halving profit in its first quarter due to torrid conditions in Italy and Spain. France Telecom has been grappling with intense competition in its domestic market while Deutsche Telecom has shown a stabilization in its European business.
Vodafone revenue was up 1.2% to £46.4 billion ($73.32 billion), in line with forecasts, but core earnings slipped 1.3% due to the tough trading and increasing regulatory pressure, also in line with forecasts.
“Given larger regulatory reductions than previously envisaged, we now expect organic service revenue growth in the 2013 financial year to be slightly below our previous medium term guidance range,” the group said.
